Q1 2024 Corsair Gaming Inc Earnings Call

Operator: Good afternoon everyone, and welcome to Corsair Gaming's first quarter 2024 earnings conference call. As a reminder, today's call is being recorded, and your participation implies consent to such recording. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad.

Good afternoon, everyone and welcome to Coursera Gaming's first quarter 2024 earnings conference call.

Operator: As a reminder, today's call is being recorded and your participation implies consent to such a recording.

Operator: At this time all participants are in a listen only mode a brief.

Operator: A question and answer session will follow the formal presentation.

Operator: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Operator: With that I'd now like to turn the call over to Ronald Banding of course, there is vice president of finance and Investor Relations.

Speaker Change: Thank you.

Speaker Change: Sir please.

Speaker Change: Please begin.

Ronald Van Veen: Thank you. Good afternoon, everyone, and thank you for joining us for Corsair's Financial Results Conference call for the first quarter and for March 31st, 2024. On the call today, we have Corsair CEO Andy Paul and CFO Michael Potter. Andy will review highlights from the quarter, and Michael will then review the financials and their outlook. We will then have time for any questions.

Speaker Change: Thank you good afternoon, everyone and thank you for joining us for per share financial results conference call for the first quarter ended March 31 2024.

Speaker Change: On the call today, we have corsair, CEO, and Paul and CFO Michael power.

Ronald Van Veen: Andy will review highlights from the quarter, Michael didn't review the financials and our outlook. We will then have time for any questions.

Ronald Van Veen: Before we begin, allow me to provide a disclaimer regarding forward-looking statements. This call, including the Q&A portion of the call, may include forward-looking statements related to the expected future results of a company and are therefore forward-looking statements. Our actual results may differ materially from our projections due to a number of risks and uncertainties. The risks and uncertainties that forward-looking statements are subject to are described in their earnings release and other SEC filings.

Ronald Van Veen: Before we begin allow me to provide a disclaimer regarding forward looking statements this call, including the Q&A portion of the call May include forward looking statements related to the expected future results of our company and are therefore forward looking statements. Our actual results may differ materially from our projections due to a number of risks and uncertainties the risks.

Ronald Van Veen: And uncertainties forward looking statements are subject to are described in our earnings release and other SEC filings.

Ronald Van Veen: Today's remarks will also include references to non-GAAP financial measures. Additional information, including reconciliation between non-GAAP financial information and GAAP financial information, is provided in the press release we issued after the market closed down. With that, I'll now turn the call over to Ed.

Ronald Van Veen: These remarks also include references to non-GAAP financial measures additional information, including reconciliation between non-GAAP financial information to the GAAP financial information is provided in the press release, we issued after the market close today with that I'll now turn the call over to Andy.

Andrew J. Paul: Thank you, Ronald, and welcome, everyone, to our Q1 earnings call. 2024 is starting out as expected with new products driving a rebound in peripheral growth. Our gaming and creative peripheral segment has continued its impressive performance, achieving 20% year-over-year revenue growth in the first quarter of 2024, after 16% year-over-year revenue growth in the fourth quarter of 2023. We're very pleased that growth is coming for all product lines. This was across Elgato with its popular Stream Deck products, SCUF Gaming with the successful recent launch of PC controllers, and Corsair peripherals with several new keyboards, headsets, and mice.

Ed: Thank you Valda and welcome everyone to our Q1 earnings call.

Andrew J. Paul: 'twenty 'twenty four is starting out as expected.

Andrew J. Paul: These new products driving a rebound in peripheral scruggs.

Andrew J. Paul: Our gaming and create the peripheral segment.

Andrew J. Paul: Has continued its impressive performance achieving 20% year over year revenue growth in the first quarter of 2024 after 16% year over year revenue growth in the fourth quarter of 2023.

Andrew J. Paul: We're very pleased that growth is coming from all product lines.

Andrew J. Paul: This was of course El Gallo with its popular stream deck products scale gaming with the successful recent launch of P. C controllers and cool stat principles with several new keyboards headsets are nice.

Andrew J. Paul: We were particularly pleased to see the gross margin lift to 40% with these new product launches. We fully expect to build on this momentum over the coming quarters with an exciting lineup of planned product launches, some of which we will discuss on the call today. Demand was more subdued in the component market, as is normal in this stage of the GPU cycle.

Andrew J. Paul: We were particularly pleased to see the gross margin lift to 40% with these new product launches.

Andrew J. Paul: We fully expect to build on this momentum over the coming quarters with an exciting lineup of planned product launches some of which we will discuss on the call Tonight.

Andrew J. Paul: Demand was more subdued in the component market as is normal in this stage of the GPU cycle.

Andrew J. Paul: In the short term, the self-built PC market is stable, with the next surge expected in late 2024 and 2025 when next-gen GPUs and CPUs are launched. We're also already seeing some benefit in the pricing of our most popular DRAM modules, as gamers are using higher DRAM capacity for faster gameplay, giving you a sense of how big the memory opportunity is. It is estimated that 95% of Steam gamers have less than 16GB of memory in their systems.

Andrew J. Paul: In the short time, the self built T. C market is stable with the next slide you expect you Didnt late 'twenty 'twenty, four and 'twenty to 'twenty five when Nexgen Gpus and Cpus are launched.

Andrew J. Paul: We also well what are you seeing some benefit in the pricing of our most popular DRAM modules.

Andrew J. Paul: As gamers are using higher DRAM capacity for foster gameplay.

Andrew J. Paul: Give you a sense of how big the memory opportunity is it is estimated that 95% of steam gamers have less than 16 gig of memory in the systems.

Andrew J. Paul: That represents a huge opportunity for us. We continue to have a high market share in the component space, which we're focused on further growing, led by a strong planned product launch schedule, including several recent launches with our 2,500 and 6,500 series cases, IQ Link RX Series fans, and Corsair One platform upgrade.

Andrew J. Paul: That represents a huge opportunity for us.

Andrew J. Paul: We continue to have high market share in the components space.

Andrew J. Paul: Which we are focused on further growing.

Andrew J. Paul: Led by a strong planned public launch schedule, including several recent launches with all 25, and 6500 series cases IQ.

Andrew J. Paul: By Q link Rx David's fans.

Andrew J. Paul: And cool say one platform upgrade.

Andrew J. Paul: As we look forward, 2024 will be an exciting year of innovation with an impressive slate of new Corsair products as we broaden our category reach. We've done a lot of work as part of our product selection and development. As a result, we expect both our upcoming mobile gaming controller and our upcoming sim racing product line will be two standout launches for us. Corsair Racing is set to launch at Computex in June 2024. We have developed a total experience engineered to offer a fully immersive sim racing experience.

Andrew J. Paul: As we look forward 'twenty 'twenty four will be exciting year of innovation with an impressive slate of new core products as we broaden our category reach.

Andrew J. Paul: Done a lot of work as part of our product selection and development.

Andrew J. Paul: As a result, we expect both our upcoming mobile gaming controller and our upcoming Sim racing product line will be to stand out launches photos.

Andrew J. Paul: Of course, everybody sees set to launch at Computex in June 'twenty 'twenty four.

Andrew J. Paul: We have developed a total experience engineered to offer a fully immersive simulation experience.

Andrew J. Paul: This is a high-growth category, especially as Formula 1 continues to gain interest in the U.S. Corsair will have a unique advantage in this market because of our ability to produce all the relevant components for a sim racing setup. [inaudible] New Racing Components with our Gaming PCs, Curved Monitors, and PC Peripherals. We're also excited for the upcoming launch of our SCUF mobile gaming controller. This is one of the market's fastest growing areas and represents a very large global opportunity for us, which we expect will become another important long-term growth driver.

Andrew J. Paul: This is a high growth category, especially as Formula one continues to gain interest in the U S.

Andrew J. Paul: Of course that will have a unique advantage in this market because of all the ability to produce all the relevant components seem racing setup.

Andrew J. Paul: Biting off.

Andrew J. Paul: New racing owners with al.

Andrew J. Paul: Gaming Pcs curved monitors and PC peripherals.

Andrew J. Paul: We are also excited for the upcoming launch of all Scuffed mobile gaming controller. This is one of the markets fastest growing areas.

Andrew J. Paul: <unk> represents a very large global up shouldn't be foolish, which we expect will become another important long sunglass dry bulk.

Andrew J. Paul: Yeah.

Andrew J. Paul: And we're very encouraged with our recent launch of the new Elgato Neo product family, which is targeting a different and more casual user base than our traditional prosumer Elgato customers. The response has been very positive, and we expect sales to ramp through 2024 and over the coming years. This is one of the largest launches in El Gato's history.

Andrew J. Paul: And we're very encouraged with our recent launch of the new El Gallo, neither product family, which is targeting a different and more casual user base.

Andrew J. Paul: Traditional prosumer El Gallo customers.

Andrew J. Paul: Our response has been very positive and we expect sales to ramp through 2024 and over the coming years.

Andrew J. Paul: This is one of the largest launches in El Gallo is history.

Andrew J. Paul: By combining hype and performance with plug-and-play simplicity, we make live video calls and live streams easier and more professional-looking. This is another large segment of the market that we expect to be additive to our growth as we expand our market share. Our launch included the Wave Neo Microphone, Facecam, Keylight, Capture Card, and Stream Deck. We also expect this will help drive even faster growth in our expanding Stream Deck ecosystem. In addition to launching the new models, our Stream Deck application marketplace continues to rapidly add new users. As of Q1, over 40% of the estimated Stream Deck installed base have opened accounts on the Marketplace website.

Andrew J. Paul: By combining hot and full months with plug and play simplicity, we make life video Kohl's and live streams easier and more professional looking.

Andrew J. Paul: There's another large segment of the market, we expect to be to be additive to our growth as we expand our market share.

Andrew J. Paul: All launch included the way yeah microphone place can key light cat record and stream deck.

Andrew J. Paul: We also expect this will help drive even faster growth in our expanding screamed that ecosystem.

Andrew J. Paul: In addition to launching the new levels upstream deck application marketplace continues to rapidly add new users.

Andrew J. Paul: As of Q1 over 40% of the estimated stream deck installed base, how both of them to counsel them the marketplace website.

Andrew J. Paul: Given the popularity of Stream Deck, we expect the marketplace will become a very meaningful new revenue stream over the coming years. On our last call, we highlighted proactive actions we were taking to increase our operational efficiency, including moving production of many of our SCUF controllers to our factory in Taiwan, closure of an expensive UK factory, and expansion of our Atlanta facility. Added to this, our efforts in regional and retail expansion are also progressing well, with anticipated revenue boosts in the latter half of 2024. We've successfully expanded the retail presence of Corsair's full suite of gaming and creative products. Introduce the drop product line to retail channels.

Andrew J. Paul: Given the popularity of stream that we expect the market place will become a very meaningful new revenue stream over the coming years.

Andrew J. Paul: Okay.

Andrew J. Paul: On our last call, we highlighted proactive actions, we've taken to increase our operational efficiency.

Andrew J. Paul: Including moving production of many of all scuffed controllers to our factory in Taiwan closure of inexpensive UK factory and expansion of our Atlanta facility.

Andrew J. Paul: Adding to this all efforts in regional and retail expansion and also Q well.

Andrew J. Paul: With anticipated revenue boost to the latter half of 'twenty 'twenty four.

Andrew J. Paul: We've successfully expanded the retail presence of course as full suite of gaming room Creative products, Inc.

Andrew J. Paul: Introduce the drug product lines through retail channels.

Andrew J. Paul: This year, we expanded our SCUF Gaming product lines in retail and strengthened our partnerships with several major online retailers. These initiatives solidify our position in the market and set the stage for continued growth and success in the years ahead. Finally, we remain active on the M&A front, which is a key driver in the peripheral segment. Our recent acquisition of Drop is fully integrated and contributing. This builds on our impressive track record of success with Elgato, SCUF, and five other M&A transactions.

Andrew J. Paul: Spend it all gaming product lines in retail and strengthened our partnerships with several major online retailers.

Andrew J. Paul: These initiatives solidify our position in the market.

Andrew J. Paul: Set the stage for continued growth and success in the years ahead.

Andrew J. Paul: Finally, we remain active on the M&A front, which is a key driver in the peripheral segment.

Andrew J. Paul: Our recent acquisition of drop is fully integrated and contributing.

Andrew J. Paul: Builds on our impressive track records of success without Gatto skull and five other M&A transactions.

Andrew J. Paul: We are carefully evaluating opportunities as part of the regular course of business, and we will look to pursue those that fit our long-term growth plans from a product and brand standpoint and valuation. Looking forward to the balance of 2024, we do not expect growth in the gaming components and systems segment until the next family of GPU cards are launched, which we expect will be late 2024 or early 2025. For the gamer and creative peripheral segment, we expect significant growth, especially for the new products we recently launched and more that we're about to launch.

Andrew J. Paul: We are carefully evaluating opportunities as part of the regular course of business and we will look to pursue those that fit our long term growth plans from our product and brand standpoint and valuation.

Andrew J. Paul: Looking forward to the balance of 'twenty 'twenty four we do not expect growth in the gaming component. The systems segment until the next family of GPU cards launched which we expect will be late 'twenty four or early 2025.

Andrew J. Paul: So the game and create a peripheral segment, we expect significant growth.

Andrew J. Paul: Especially as the new products, we recently launched and more that we're about to launch.

Andrew J. Paul: In addition, as we mentioned in our last update, we'll be entering two new product categories in 2024, sim racing and mobile controllers. We expect the overall gaming market to now resume back to historical growth levels as the effects of the pandemic recede into history.

Andrew J. Paul: In addition, as we mentioned in our last update we will be entering two new product categories in 'twenty 'twenty four embracing them mobile controllers.

Andrew J. Paul: We expect the overall gaming market to now as you back to historical growth levels.

Andrew J. Paul: As the effects of the pandemic recede into history.

Andrew J. Paul: Let me now turn the call over to our CFO, Michael Potter, for details on the financials. Michael, please go ahead. Thanks, Andy.

Andrew J. Paul: Let me now turn the call over to our CFO, Michael Potter for details on the financials. Michael. Please go ahead.

Michael G. Potter: Thanks, Andy, and good afternoon, everyone. I am pleased to report a solid start to 2024, especially for our key gamer and creator peripheral segment and gross margins in general. We expect to build on the start with improved revenue growth and EBITDA expansion in the second half. The success of our new products is driving market share gains and margin expansion, with notable growth in our gamer and creator peripheral segment. Overall, our markets remain healthy, and we continue to execute on our organic business, with an eye on accelerated growth through M&A given our track record and strong financial position.

Michael G. Potter: Thanks, Andy and good afternoon, everyone I.

Michael G. Potter: I am pleased to report a solid start to 2020 for especially for our key Gamer and creator peripheral segment and gross margins in general we expect to build on this start with improved revenue growth and EBITDA expansion in the second half the success of our new products is driving market share gains and margin expansion with notable growth.

Michael G. Potter: And our Gamer and greater peripheral segment overall, our markets remain healthy and we continue to execute on our organic business with an eye on accelerated growth through M&A, given our track record and strong financial position.

Michael G. Potter: In terms of the specifics, Q1 2024 net revenue was $337.3 million compared to $354 million in Q1 2023. European markets contributed 34.3% of our Q1 2024 revenues compared to 38.6% in Q4 2023, while the APAC region contributed 13.8% of our Q1 2024 revenues compared to 9.9% in Q4 2023. Turning now to our segments, the gamer and creator peripheral segment contributed $107 million of net revenue during the first quarter, compared to $88.9 million in Q1.

Michael G. Potter: In terms of the specifics Q1, 2024 and that revenue was $337 $3 million.

Michael G. Potter: Paired to $354 million in Q1 2023.

Michael G. Potter: European markets contributed 34, 3% of our Q1 2024 revenues compared to 38, 6% in Q4 2023, while the APAC region was 13, 8% of our Q1 revenues compared to nine 9% in Q4 2023.

Michael G. Potter: Turning now to our segments, the Gamer and greater peripheral segment contributed $107 million of net revenue during the first quarter compared to $88 $9 million in Q1 2023.

Michael G. Potter: The gaming components and systems segment contributed $230.3 million of net revenue during the quarter, compared to $265 million in the year-ago period. Memory products contributed $124.9 million in the first quarter 2024, compared to $131.3 million in Q1 2023. Overall gross profit in the first quarter was $86.6 million compared to $85.4 million in Q1 2023, primarily reflecting MIX. Gross margin increased 160 basis points to 25.7% compared to 24.1% in Q1. We achieved this expansion despite challenges such as increased freight costs stemming from turmoil in the Red Sea and resulting delays necessitating incremental airshipments.

Michael G. Potter: The gaming components and system segment contributed $233 million of net revenue during the quarter compared to $265 million in the year ago period.

Michael G. Potter: New products contributed $124 $9 billion in first quarter 2024, compared to $131 $3 million in Q1 2023.

Michael G. Potter: Overall gross profit in the first quarter was $86 $6 million compared to $85 $4 million in Q1, 2023, primarily reflecting mix gross margin increased 160 basis points to 25, 7% compared to 24, 1% in Q1 2020.

Michael G. Potter: Three we achieved this expansion despite challenges such as increased freight costs stemming from tomorrow on the Red Sea and result in delays necessitating incremental air shipments the.

Michael G. Potter: The Gamer and Creator peripheral segment gross profit was $43.6 million, compared to $26.6 million in Q1 2023. Gross margin was a record 40.8%, up 1080 basis points compared to 30% in Q1 2023. The gaming components and systems segment gross profit was $43 million compared to $58.8 million in Q1. Gross margin was 18.7% compared to 22.2% in Q1, 2023, reflecting mixed and continued cost headwinds. Our memory products gross margins in this segment were 14.5% for the first quarter compared to 15.8% in Q1.

Michael G. Potter: The game room, greater peripheral segment gross profit was $43.6 million compared to $26.6 million in Q1 2023.

Michael G. Potter: Gross margin was a record 48% up 1080 basis points compared to 30% in Q1 2023.

Michael G. Potter: The gaming components and systems segment gross profit was $43 million compared to $58 $8 million. In Q1 2023 gross margin was 18, 7% compared to 22, 2% in Q1, 2023, reflecting mix and continued cost headwinds our memory products.

Michael G. Potter: Gross margin for this segment were 14, 5% for the first quarter compared to 15, 8% in Q1 2023.

Michael G. Potter: First quarter SG&A expenses were $80.2 million compared to $67.5 million in Q1 2023, while R&D expenses were $16.6 million compared to $16.8 million in Q1 2023. We continue to invest in support of new category leadership products in both our components and peripheral segments. With recent major introductions from Elgato and Scuf Gaming, a major new category launch is coming in sim racing and mobile gaming.

Michael G. Potter: First quarter, SG&A expenses were $82 million compared to $67 $5 million in Q1, 2023, while R&D expenses were $16.6 million compared to $16 $8 million. In Q1 2023, we continue to invest in support of new category leadership products.

Michael G. Potter: And both our components and peripheral segments.

Michael G. Potter: Recent major introductions from Alco and scoff gaming a major new category launches coming in Sim racing in mobile gaming consumer response has been very positive and we're encouraged with the momentum we are building as we continue to take market share.

Michael G. Potter: Consumer response has been very positive, and we are encouraged by the momentum we are building as we continue to take market share. As a result of our investments in SG&A, our gap operating loss in the first quarter of 2024 was $10.2 million compared to operating income of $1 million in Q1 2023. First quarter adjusted operating income was $15.4 million compared to $18.2 million in Q1 2023. First quarter net loss attributable to common shareholders was $12.5 million or $0.12 per diluted share as compared to a net loss of $1.1 million or $0.01 per diluted share in Q1 2023.

Michael G. Potter: As a result of our investments in SG&A.

Michael G. Potter: GAAP operating loss in the first quarter of 2024 was $10 $2 million compared to operating income of $1 million. In Q1, 2023 first quarter adjusted operating income was $15 $4 million compared to $18 $2 million in Q1 2023.

Michael G. Potter: First quarter net loss attributable to common shareholders was $12 $5 million or 12 cents per diluted share as compared to a net loss of $1 $1 million or one cents per diluted share in Q1 2023.

Michael G. Potter: On an adjusted basis, first quarter net income was $9.5 million, or $0.09 per diluted share, compared to $11.9 million, or $0.11 per share, in Q1 2023. First quarter 2024 adjusted EBITDA was $18 million, compared to $20.6 million in Q1. Drop was neutral as expected in Q1, and with the integration behind us, we continue to expect it to grow as we move through 2024.

Michael G. Potter: On an adjusted basis first quarter net income was $9 $5 million or nine cents per diluted share compared to $11 $9 million or 11 cents per share in Q1 2023.

Michael G. Potter: First quarter 2024, adjusted EBITDA was $18 million compared to $26 million in Q1, 2023 drop was neutral as expected in Q1 and with the integration behind US we continue to expect it to grow as we move through 2024.

Michael G. Potter: Turning now to our balance sheet. We ended Q1 in a strong financial position with a cash balance, including restricted cash, of $130.2 million. We ended Q1 with $184 million of debt at face value, and our $100 million working capital revolver remains undrawn and fully available. We further reduced debt in Q1, and plan to continue doing so over the next coming quarters.

Michael G. Potter: Turning now to our balance sheet. We ended Q1 in a strong financial position with a cash balance including restricted cash of $132 million. We ended Q1 with $184 million of debt at face value and our 100 million dollar working capital revolver remains undrawn and fully available.

Michael G. Potter: We further reduced debt in Q1 and plan to continue doing so over the next coming quarters.

Michael G. Potter: Given our strong balance sheet, we have the flexibility to continue decreasing debt while also allocating resources to invest in our operations, which includes actively seeking out further M&A opportunities. These strategic initiatives are designed to accelerate our growth and increase profitability over the long term. In terms of our outlook, we are affirming our outlook for the full year 2024. We continue to expect total revenue in the range of $1.45 billion to $1.6 billion.

Michael G. Potter: Given our strong balance sheet, we have the flexibility to continue decreasing debt, while also allocating resources to invest in our operations, which includes actively seeking out further M&A opportunities. These strategic initiatives are designed to accelerate our growth and increased profitability over the long term.

Michael G. Potter: Adjusted operating income in the range of $92 million to $112 million, and adjusted EBITDA in the range of $105 million to $125 million. Assuming we maintain the same debt and cash balances in 2024, we'd expect to have approximately $2 million in net interest expense per quarter. We're using an effective tax rate of approximately 18% to 22% for 2024 and a four-year weighted average diluted shares outstanding of approximately 107 to 110 million shares.

Michael G. Potter: In terms of our outlook, we are affirming our outlook for the full year of 2024, we continue to expect total revenue in the range of $1.45 billion to $1 $6 billion.

Michael G. Potter: Adjusted operating income in the range of $92 million to $112 million and adjusted EBITDA in the range of $105 million to $125 million.

Michael G. Potter: Assuming we maintain the same debt and cash balances in 2024, we'd expect to have approximately $2 million of net interest expense per quarter.

Michael G. Potter: Using an effective tax rate of approximately 18% to 22% for 2024 and full year weighted average diluted shares outstanding of approximately 107 to 110 million shares.

Operator: As a reminder, we're expecting normal seasonality this year, with Q2 typically being the lowest revenue quarter of the year. We also expect year-over-year strength in our gamer and creative peripheral segment throughout the year. In summary, we're pleased with our strong growth in the gamer and creative peripheral segment and with our continued strong market share. We expect to achieve increased growth in the second half of 2024, led by our new products and expansion into two major new categories.

Michael G. Potter: As a reminder, we're expecting normal seasonality this year with Q2, typically being the lowest revenue quarter of the year.

Operator: We also expect year over year strength in our Gamer and creator peripheral segment throughout the year.

Operator: In summary, we're pleased with our strong growth in the game or in creator peripheral segment and with our continued strong market share.

Operator: We expect to achieve increased growth in the second half of 2024 led by our new products and expansion into two major new categories. Our balance sheet is strong and we remain committed to investing in the products that will drive our growth and further market share gains across both peripherals and components.

Operator: Our balance sheet is strong, and we remain committed to investing in the products that will drive our growth and further market share gains across both peripherals and components. With that, we're now happy to open the call for questions. Operators, we open up the call for Q&A.

Speaker Change: With that we're now happy to open the call for questions operator, as we open up the call for Q&A.

Operator: Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one on a touch-tone telephone. To withdraw your question, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the numbers to ensure the best sound quality.

Speaker Change: Ladies and gentlemen at this time, we'll begin the question and answer session.

Operator: To ask a question you May press Star and then one we think a touchtone telephone.

Operator: All your questions you May press star two.

Operator: If you are using a speaker phone, we do ask that you. Please pick up the handset prior depressing the numbers demonstrate the best sound quality.

Operator: Once again, that is the star and then one to join the question queue. Our first question today comes from George Wang from Barkers. Please go ahead with your question.

Operator: Once again that is star and then one to join the question queue.

Unknown Attendee: Oh, hey, guys. Thanks for taking my question. I have two quick ones.

Operator: Our first question today comes from George George Wang from Barclays. Please go ahead with your question.

Unknown Attendee: Firstly, can you give a little bit more color just about the component memory business? You know, definitely weaker than expected, which kind of partially drove the kind of overall, you know, below expectation. You guys talked about no growth until the new GPU slash CPU launches in the second half, as well as 2025. So now, what's the refresh growth rate for this year? You know, based on my model, it seems, you know, it's tracking kind of a slight decline on a yearly basis. Just curious how confident you are in terms of kind of a tangible rebound in a few quarters.

Unknown Attendee: Oh, Hey, guys I think Paul and taking my question I have two quick ones firstly.

Unknown Attendee: Maybe a little color just all about the component of memory business.

Unknown Attendee: We couldn't expect it kind of partially drove the kind of the overall.

Unknown Attendee: Citation.

Unknown Attendee: Puffball no growth until our new GPU CPU launch in the second half as well.

Unknown Attendee: I was talking 75, so well now what's the refreshed growth rate for this year.

Unknown Attendee: Based on my model things.

Unknown Attendee: Tracking kind of a slight decline on a year over year basis. Just curious how confident you are in terms of kind of a tangible rebounds.

Unknown Attendee: A few quarters.

Andrew J. Paul: Well, we see every GPU cycle, the same thing happens, and we're now... I mean, the rumors are already out of when NVIDIA is going to launch their new cards. Obviously, they haven't officially announced when it is, but the rumors out there are saying end of this year, early next year.

Unknown Attendee: Well, we see every Keith you cycle the same thing happens.

Andrew J. Paul: And we have now.

Andrew J. Paul: In the room is really out of Wynn and video is going to launch their new cards, obviously, they havent officially announced.

Andrew J. Paul: What it is but the rumors out there saying end of this year early 'twenty five.

Andrew J. Paul: And so people will start gearing up for that. And in fact, a lot of times, people start building machines in advance of the new cards. They're building a machine to take advantage of it. So that's why we're expecting Q4 to be pretty good. But this year, it could be a flat or slightly down market depending on which part of the world.

Andrew J. Paul: So people will start gearing up for that.

Andrew J. Paul: Thanks, a lot of times people stopped building machines and.

Andrew J. Paul: In advance of the new codes, so building a machine to take it so.

Andrew J. Paul: That's why we're expecting Q4 to be pretty good.

Andrew J. Paul: But this year.

Andrew J. Paul: The early adopters are definitely going to wait for that you called and that's offset by the.

Andrew J. Paul: The mainstream customer then they are using the less expensive Cogs, that's still getting P. C. So overall that gives you as you say oh.

Andrew J. Paul: A flat to slightly down market, depending on which part of the world.

Unknown Attendee: Okay, great. Secondly, can you kind of address regional and retail expansion? You talk about it kind of in the prepared remarks. And also, I kind of noticed Asia, you know, a smaller mix versus total, kind of, you know, the low teams. So, you know, likely some opportunity for the Asian expansion. So maybe you can talk about your investment in retail as well as regional expansion.

Speaker Change: Okay great.

Andrew J. Paul: Lee.

Unknown Attendee: Can you kind of address regional in our retail expansion you talked about a kind of thing in the prepared remarks, and also I noticed the Asia.

Unknown Attendee: Dollar mix buses pulled all kind of in the low teens, so there's likely some opportunity on the Asia expansion. So maybe you can alcohol.

Unknown Attendee: Lastly, the retail as well as the region legislation.

Andrew J. Paul: Yeah, sure. Well, there are a few things going on.

Speaker Change: Yeah sure well, there's a few things going on in the U S. We're expanding into additional retailers, who are expanding also put into Walmart and target.

Andrew J. Paul: In the US, we're expanding into additional retailers. We're expanding our footprint into Walmart and Target with some of our new product lines. Worldwide, you are right. Asia has been the weakest part of the globe, and that's mostly because China is not doing well. As you probably know, there's some pretty big unemployment among the youth in China. So we've switched our attentions now to really double down on Korea and Japan, where we see lots of opportunities, and we have a much lower market share there than we do in other parts of the world.

Andrew J. Paul: New product lines.

Andrew J. Paul: Worldwide you are right our Asia has been the weakest part of the globe.

Andrew J. Paul: And that's mostly because China is not doing well.

Andrew J. Paul: As you probably noticed pretty big unemployment in the.

Andrew J. Paul: And the youth in China. So we switched our attention is now to really double down on Korea and Japan.

Andrew J. Paul: Where we see lots of opportunities and we have a much lower market share there than we do in other parts of the world. So.

Andrew J. Paul: We would expect Asia, the bounce back, but not in China, but in places like Korea and Japan.

Andrew J. Paul: So we'd expect Asia to bounce back, but not in China, but in places like Korea and Japan. Europe is doing quite well. I just spent the week in Europe with all our sales guys, and they're extremely positive. And the U.S. [inaudible] is also pretty strong in a lot of gaming categories, but in the self-built PC market, as we just said, we're waiting for the new cards.

Andrew J. Paul: Japan, Europe is doing quite well.

Andrew J. Paul: I just spent the weekend with all our sales guys and the extremely positive.

Andrew J. Paul: In the U S.

Andrew J. Paul: It is also pretty strong in a lot of gaming categories, but.

Andrew J. Paul: And the self built P C market as we just said.

Andrew J. Paul: We went into the new codes.

Unknown Attendee: Okay, great. I'll go back to the queue.

Speaker Change: Okay, Great I'll go back to the queue.

Operator: Our next question comes from Drew Crum from Steeple. Please go ahead with your question.

Unknown Attendee: Our next question comes from drew Crum from Stifel. Please go ahead with your question.

Andrew Edward Crum: Hey guys, good afternoon. On the gamer and creator segment, was there anything unique during the period that drove the record gross margin performance? Do you see that as sustainable going forward, or should we assume it falls sequentially? And then I have a follow-up.

Andrew Edward Crum: Thanks, Hey, guys. Good afternoon on the Gamer and creators segment was there anything unique during the period that drove the record gross margin performance and do you see that as sustainable going forward or should we assume that fall sequentially and then I have a follow up.

Michael G. Potter: Well, no, we're expecting that this is where it should be. There are a few things going on from a mixed perspective, and I think, as you know, we invested in some of the supply chain from our El Gato product lines. So we have one manufacturer that developed with us, the Stream Deck. We've bought a significant amount of that company. Unknown Attendee, Aaron Lee, Dong Wang, John Butler, Ronald Veen, Jack Butler, Ronald Veen, Aaron Lee, Dong Wang, John Butler, Ronald Veen, Jack Butler, Aaron Lee, So that's driving very healthy margins.

Speaker Change: Well no we're expecting that this is this is what it should be.

Michael G. Potter: Two things going on from a mixed perspective.

Michael G. Potter: And I think as you know we invest.

Michael G. Potter: We invested in some of the supply chain.

Michael G. Potter: From our El Gallo.

Michael G. Potter: Product lines. So we have one manufacturer that.

Michael G. Potter: <unk> developed with us the stream that.

Michael G. Potter: We bought.

Michael G. Potter: A significant amount of that company.

Michael G. Potter: And that allows us to increase our margins quite substantially and that she is the biggest part of our El Gallo portfolio now.

Michael G. Potter: So that's driving a very healthy margins.

Michael G. Potter: We've had a really good bounce back with Scuff, which again is direct-to-consumer and has very high margins. So a lot of this is mixed in that the different parts of the gaming creator segment; we've got some parts that are very high, 50% margin kind of categories that drive the mix up. But the... are traditional. Gaming Peripherals categories, which are keyboards, mice, and headsets, have also sequentially been increasing. So, I would hope that we'll use this. (inaudible)

Michael G. Potter: Had a really good bounce back with a skull.

Michael G. Potter: Which again is direct to consumer and so.

Michael G. Potter: Very high margin so.

Michael G. Potter: All of this is mix in the different parts of the gaming segment.

Michael G. Potter: We've got some parts that are very high.

Michael G. Potter: The 50% margin.

Michael G. Potter: Categories that drive the mix up but.

Michael G. Potter: The.

Michael G. Potter: Oh traditional.

Michael G. Potter: Any triples, our categories, which is keyboards mice and headsets is also sequentially been increasing so I would hope that will ease this.

Michael G. Potter: <unk> margin as a base and keep building from here.

Andrew Edward Crum: Okay, helpful. And then Andy, in your prepared remarks, you talked about the mobile gaming controller and the new sim racing product line you're launching in June. Any way you can size the TAM for both of those? Thanks.

Speaker Change: Okay helpful. And then Andy in your prepared remarks, you talked about the mobile gaming controller and the new Sim racing product line, you're launching in June anyway, you can size the Tam for for both of those.

Andrew Edward Crum: Well.

Andrew Edward Crum: Very roughly.

Andrew J. Paul: Very roughly. I mean, and the reason I say very roughly is that there's not a lot of really good, crisp data.

Andy: I I mean, and the reason I say very roughly is there's not a lot of really good crisp data are I would say the symbolic as best we can tell it's probably around $1 billion now.

Andrew J. Paul: I would say the SIM market, as best we can tell, is probably around a billion dollars now, and we're going to enter the. Unknown Attendee, Aaron Lee, Dong Wang, John Butler, Ronald Veen, Jack Butler, Ronald Veen, ASP Area, and not be pulled into the $50 category. So that's another one where we're going to stay in the premium end of the market.

Andrew J. Paul: And are we going to enter the.

Andrew J. Paul: Top half of that.

Andrew J. Paul: Initially so we're not going to be making you know 100 or $200 doing well kits will be making products for people that are spending a few thousand dollars on the on the rig same way as you do with a P C categories.

Andrew J. Paul: Plenty of market for us to.

Andrew J. Paul: Ramp up to 100 or $200 million there.

Andrew J. Paul: The.

Andrew J. Paul: Mobile gaming as AR is little less when everyone's thinking that can easily get to a billion dollars is probably not there yet.

Andrew J. Paul: But it is one of the fastest growing categories are and.

Andrew J. Paul: And what we want to make sure there is that we can stay in the <unk>.

Andrew J. Paul: $100 or $100 plus S P area and not to be pulled into the $50 category. So that's another one where we're going to stay in the premium into the market.

Andrew Edward Crum: Got it. Okay. Thanks, guys.

Speaker Change: Got it okay. Thanks, guys.

Operator: Our next question comes from Aaron Lee from Macquarie. Please go ahead with your question.

Andrew Edward Crum: Our next question comes from Aaron Lee from Macquarie. Please go ahead with your question.

Aaron Lee: Good afternoon, guys. Thanks for taking my question. Just to start, any color you can provide on the general state of the consumer, and do you still feel like there's room to push up ASPs or pass on costs?

Aaron Lee: Good afternoon, guys. Thanks for taking my question.

Aaron Lee: Just just to start I mean in general any color you can provide on the general state of the consumer and do you still feel like there's room to push up asps or pass on costs.

Aaron Lee: Okay.

Andrew J. Paul: Well, that's an interesting question. I mean, as I said, and I remember distinctly in the IPO presentations, my feeling was that gaming hardware, in general, would follow the trend of sports equipment. [inaudible] Now, in the component space. A lot of this depends on.., you know, what happens with the power needs of.

Speaker Change: Well, that's an interesting question I mean is the only.

Andrew J. Paul: Ed and I have limited distinctly in the in the I.

Andrew J. Paul: I P O presentations my feeling was that gaming hardware in general would.

Andrew J. Paul: Would follow the trend of sports equipment.

Andrew J. Paul: Rather than consumer electronic hardware in other words, it would keep going up.

Andrew J. Paul: As new features are found to.

Andrew J. Paul: People to play games, better and that's exactly what's happened. So if you look at the headset all keyboard market.

Andrew J. Paul: People are quite comfortable now paying two or $300 per headsets, and two or $300 for keyboards, whereas if you go back 10 years. These are firmly 50 to 100 dollar market. So.

Andrew J. Paul: S. T continues to go up.

Andrew J. Paul: And the component space.

Andrew J. Paul: Although this depends on what happens with the power needs of.

Andrew J. Paul: Unknown Attendee, Aaron Lee, Dong Wang, John Butler, Ronald Veen, Jack Butler, Ronald Veen, He's [inaudible] Unknown Attendee, Aaron Lee, Dong Wang, John Butler, Ronald Veen, Jack Butler, Ronald Veen

Andrew J. Paul: Gpus.

Andrew J. Paul: We do think that when.

Andrew J. Paul: When we listen to Jenkins.

Andrew J. Paul: He's.

Andrew J. Paul: Absolutely.

Andrew J. Paul: Hell bent on cramming as much.

Andrew J. Paul: Horsepower as you possibly can.

Andrew J. Paul: That tends to use a lot of power so.

Andrew J. Paul: We think the next generation is gonna be power hungry.

Andrew J. Paul: First a 4000 cards, well and so that tends to mean people are starting to use.

Andrew J. Paul: 800 to 1000 more power supplies.

Andrew J. Paul: Yeah, well, it's been five 600, well, so so I think and the component space, we will see a healthy.

Andrew J. Paul: Maintain maybe a little bit up on the S piece, but some cadence.

Andrew J. Paul: David principles, there's plenty of room to grow.

Aaron Lee: Got it. Thank you. And then just on some of these new product launches. You've obviously launched several new categories over the past few quarters. Are there any categories that have surprised you or stood out in terms of demand and growth potential? Thank you.

Speaker Change: Got it thank you.

Aaron Lee: And then just on some of these new product launches I'm you've.

Speaker Change: We've launched several new categories over the past few quarters.

Speaker Change: Are there any categories that have surprised you or stood out in terms of the demand and growth potential. Thank you.

Andrew J. Paul: Yeah, I think the best success we've had compared to our expectations was our PC controller that we brought out from SCARF. You know, we were, we knew that a lot of people that transition from console to PC and like to use a console-style controller to play PC games. Certainly, some of them. And, of course, the whole Call of Duty League moved from console to PC. So we brought out a controller that was PC-only.

Speaker Change: Yeah, I think the.

Andrew J. Paul: The best success with high compared to our expectations was a P C controller.

Andrew J. Paul: That we brought out some skills.

Andrew J. Paul: And.

Andrew J. Paul: You know we would we were we knew that a lot of people that transition from counsel the P C and like to use our.

Andrew J. Paul: It comes with style controls, who play PC games certainly.

Andrew J. Paul: Some of them and of course, the whole call of duty League moved from console to P. C.

Andrew J. Paul:

Andrew J. Paul: So we bought out of a can.

Andrew J. Paul: That was P. C. Ugly I must admit I was a little skeptical that would confuse some of the consumers that realize they're buying somebody then wouldn't work on.

Andrew J. Paul: I must admit, I was a little skeptical that that would confuse some of the consumers who realized they were buying something that then wouldn't work on a PS4 or Xbox, but in fact, the demand has been overwhelming, and we were sold out for the first six months. So that one has been very impressive. The other thing that surprised us was the teleprompter that El Gallo brought out. And it has literally been sold out ever since we launched in, I think, October or November. We're just now starting to get inventory in place. So we've taken the liberty of... Unknown Attendee, Aaron Lee, Dong Wang, John Butler, Ronald Veen, Jack Butler, Ronald Veen

Andrew J. Paul: Yes, Forex bulks when in fact, the demand has been overwhelming and we were sold out the first six months.

Andrew J. Paul: So that's that one has been a very impressive the other thing that surprised us was the teleprompter.

Andrew J. Paul: Gathered brought out and that literally has been sold out ever since we launched in October.

Andrew J. Paul: October and November.

Andrew J. Paul: Just now starting to get inventory in place.

Andrew J. Paul: So we've taken the.

Speaker Change: Oh, okay, well when the prosumer streaming market by storm and I think everybody has seen this thing.

Andrew J. Paul: Basically does video calls most of the Bible.

Aaron Lee: Understood. Thanks for all the color. I appreciate it.

Andrew J. Paul: Understood.

Speaker Change: Thanks for all the color I appreciate it.

Aaron Lee: Yeah.

Operator: Once again, if you would like to ask a question, please press star and then one. To withdraw yourself from the question queue, you may press star and two. Our next question comes from Colin Sebastian from Baird. Please go ahead with your question.

Speaker Change: Once again, if he would like to ask a question. Please press star and then one so it's dry yourself from the question you May Press Star two.

Operator: Our next question comes from Colin Sebastian from Baird. Please go ahead with your question.

Colin Sebastian: Hey, it's Colin Leigh at Humber. Or, rather, Colin Sebastian.

Colin Sebastian: Hey, its call them all yet.

Colin Sebastian: And I've seen the peripheral segment at a 40% gross margin. This quarter are you seeing any relief in freight costs. So far in Q2, and then do you think you'd be utilizing airfreight. This quarter to the same degree that you did in Q1. Thanks.

Colin Sebastian: Thanks for taking our question; just one from us. It was nice seeing the peripheral segment at a 40% gross margin this quarter. Are you seeing any relief in freight costs so far in Q2? And then, do you think you'll be utilizing air freight this quarter to the same degree that you did in Q1? Thanks.

Andrew J. Paul: Well, I certainly hope not in some cases. Eric Sheridan, Douglas Crum, Unknown Attendee, Aaron Lee, Dong Wang, John Butler, Ronald, you know, fairly small, so it doesn't have the same effect on freight as things like power supplies and cases. Those are things that really get affected when the rates go flying up because we just can't keep, you know, put as many into a container. But having said that, I mean, the overall effect of the Red Sea.

Speaker Change: Well I certainly hope not.

Speaker Change: In some cases.

Andrew J. Paul: That's why it occurs because we are so successful product launches that we get sold out and we have to activate them, but we keep increasing our inventory of new launches to take care of that so I certainly hope that's going to go down. The you know the vast majority of our gaming peripherals.

Andrew J. Paul: <unk>.

Andrew J. Paul: You know a fairly small so it doesn't have the same effect.

Andrew J. Paul: You know on freight are it seems like power supplies and cases, those things that really get affected when the rates go flying up because they just cant keep as many into a container.

Andrew J. Paul: But having said that I mean, the overall effect of.

Andrew J. Paul: The Red Sea.

Andrew J. Paul: Hum.

Andrew J. Paul: Container issues, I don't know how much people realize the cost went flying up in Q1, had quite an effect, as Michael mentioned earlier, on both cost and lead time. But, yeah, I think Q2 we expect, I'm afraid, definitely to go down, and we'll get some benefit from that. Okay, great. Thank you.

Andrew J. Paul: New issues.

Andrew J. Paul: I don't know how much people realize this the cost went went flying out in Q1.

Andrew J. Paul: Cost cutting effects.

Andrew J. Paul: As Michael mentioned earlier on both cost and lead time.

Andrew J. Paul: But yeah, I think Q2, we'd expect to have for a definitely to go down and we'll get some benefit from that.

Speaker Change: Okay, great. Thank you.

Operator: Again, if you would like to ask a question, please press star and then 1, and if there are no additional questions, I'd like to turn the floor back over to CEO Andy Paul.

Speaker Change: But again, if you would like to ask a question. Please press star and then one.

Andrew J. Paul: Hello, Ladies and gentlemen at this time in showing no additional questions I'd like to turn the floor back over to CEO, Andy Powell for closing comments.

Operator: Yeah.

Andrew J. Paul: Well, thank you very much, everybody, for... Thank you for attending the call. Thank you for your continued support. Any further follow-up questions, please contact our Investor Relations Department, and we look forward to updating you next quarter. Thank you, and have a good evening.

Andrew J. Paul: Well, thank you very much everybody for.

Andrew J. Paul: Attending the call.

Andrew J. Paul: And thank you for your continued support.

Andrew J. Paul: Any further follow up questions. Please contact our Investor Relations Department.

Andrew J. Paul: And we look forward to updating you next quarter. Thank you and have a good evening.

Operator: And ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining us. You may now disconnect your line.

Speaker Change: And ladies and gentlemen, with that we'll conclude today's.

Operator: Conference call and presentation, we thank you for joining us.

Operator: May now disconnect your lines.

Operator: Yeah.